Stephen Harper on Tuesday acknowledged problems in the Canadian economy but defended his Conservative government's record as continued uncertainty south of the border caused jittery world markets for a second straight day.

"At the moment there are problems in the Canadian economy, but we aren't in a recession," Harper told reporters during a campaign stop in Kitchener, Ont., where he promised a tax credit of up to $5,000 for first-time homebuyers.

"We have a slowdown economically, but personal income growth continues. There are jobs, but there are job losses, but more gains.

"The reality is that we are managing the economy and are living through this period of time, and we are managing it much better than any other industrialized country."

Markets dipped in early trading Tuesday but later recovered, with the Dow Jones up by more than 140 points and the TSX rising to see only a 27-point drop by the end of the day. Both markets had significant losses Monday following the collapse of Wall Street titans Lehman Brothers and Merrill Lynch.

Those events have heightened fears the troubles could cause a wider economic slump that would affect Canada.

Protesters target Harper event

Opposition parties have lambasted the Conservatives over Canada's beleaguered manufacturing sector, which has suffered massive job losses while the country's economic growth has dwindled to one of the lowest rates among G8 nations.

But Harper has struck back at his opponents' spending proposals ahead of the Oct. 14 federal election, saying they are risky and unaffordable.

"Our opponents do have a wild, grand plan," Harper said. "They want to massively increase spending, and one of them wants to raise taxes to cover it all. I agree that's a radical departure and it's also an unwise one."

A group of demonstrators, including some Canadian Auto Workers members, used megaphones and placards in an attempt to disrupt Harper’s announcement and protest recent manufacturing job losses in the region.

Harper downplayed the protesters' presence, saying they were "the same protesters we get in every election."

He then defended his government's actions to help struggling single-industry communities, including the community development program brought in before the last budget, and the recent $80-million auto innovation grant to Ford to keep plants operating in Windsor and St. Catharines.

Liberals slam 'Harpernomics'

In an interview on Tuesday, Liberal MP and former leadership candidate Bob Rae accused Harper of mismanaging consistent surpluses left over by previous Liberal governments.

"He had a $13-billion surplus waiting for him when he got there, and that's now down to just about zilch," Rae said from Halifax, where he was joining Liberal Leader Stéphane Dion for the first time in public during the campaign to announce the party's catastrophic drug coverage plan, aimed at the seriously ill, at Dalhousie University.

Rae's comments come as the Liberals launched a new advertising campaign criticizing "Harpernomics," while touting the party's Green Shift plan, which calls for taxing carbon fuels and shifting revenues to income tax cuts.

Rae also lambasted Harper's musings a day earlier about how he believed a recession would have occurred by now if one were coming, saying the current global markets crisis was "not a time for private economic theories."

Politics 'not a 1-man game,' says Rae

Rae's appearance comes as recent polls suggest Dion has failed to gain traction among Canadian voters amid media reports of divisions forming within the party over how the campaign has been run.

"The rumblings are beginning to turn into a roar about how the Liberals need to change the game plan, and today is evidence they are doing that," the CBC's Susan Bonner reported from the campaign.

But Rae insisted the party's collective approach can only help the party get its message of change to Canadians and counter Harper's "top-down" style of governance.

"One of the great advantages we have as a party is we actually have a team," Rae said. "Politics is not a one-man game … and running a government is not a one-man game. Unfortunately, Mr. Harper seems to think it is."

Layton targets manufacturing job losses

Speaking outside a John Deere plant slated for closure in Welland, Ont., Layton said an NDP government would expand the Canadian training and apprenticeship tax credit to provide more incentives for companies to invest in training after "decades of neglect."

"Working Canadians are not receiving the training they need," Layton told an assembly of workers outside the plant. "It's time we funded training programs properly so that people who have been thrown out of work have a fighting chance to get a decent job again."

Layton said that while the Conservatives offer general tax cuts to companies, his plan would give them credits for investing in jobs in Canada.

"There's no way that a company that closes plants here should be getting tax breaks from the government," Layton said.

Meanwhile, Green party Leader Elizabeth May campaigned in the Nova Scotia communities of Trenton and New Glasgow while Bloc Québécois Leader Gilles Duceppe visited Quebec, in Chibougamau and Chicoutimi.